The Mortgage Debt Forgiveness Act Extended to 2013: as fiscal cliff is avoided, offering homeowner tax debt cuts.
Congress made hard concessions to protect homeowners and avoid the "fiscal cliff threats" included a provision that extends the Mortgage Forgiveness Debt Relief Act through 2013, which has been highlighted by the National Association of Realtors (NAR) as critical to real estate interests and the recovering housing market. The debt relief act, scheduled to expire at the end of last year, waives forgiveness of mortgage debt from being counted as taxable income by the Internal Revenue Service. Read further to better understand how the Minnesota mortgage debt forgiveness impacts your housing situation
Helping Homeowners Who Benefit From A Short Sale
The Mortgage Debt Relief Act applies mainly to short sales of homes, or lender-approved sales for less than the principal mortgage balance. A homeowner who owes $150,000 on the mortgage and short sells for $100,000 would then be taxed on the $50,000 difference as income, placing them in a higher tax bracket. Struggling homeowners needing mortgage debt relief, and willing to contemplate a short sale or loan modification will be eligible for tax relief through Dec. 31 under the act passed in 2007 and originally scheduled to expire in 2009.
Certified Distressed Property Experts Supporting Homeowner Interests
On Jan. 1, Congress passed a bill over tense differences of application as a last minute fix to help the U.S. economy and save our housing recovery from taking a possible tumble. Real estate professionals and Certified Distressed Property Experts (CDPE)have worked to express concern for the fate of the Mortgage Forgiveness Debt Relief Act of 2007, which has saved distressed homeowners millions of dollars in tax liability since its passage.
"The short-sellers were going crazy. At one point they considered going into foreclosure, instead. Our surveys tell us that if the principal is reduced by $100,000, it can save a homeowner anywhere from $15,000 to $35,000” on the phantom income under 2012 tax rates. That’s not an insignificant amount. Foreclosures are not good for banks or home values. We’re not in a housing boom, but we are on a road to recovery." ~ Don Faught, president of California Association of Realtors and managing broker of Alain Pinel Realtors in San Francisco
Minnesota Mortgage Debt Forgiveness Helps Homeowners Stay In Their Homes
"This homeowner tax extension will help struggling homeowners take full advantage of the help intended through the national mortgage settlement and other foreclosure relief programs. We need legislation that will ensure continued priority focus to help Minnesotans who are responsible homeowners seeking to pay their bills and stay in their homes," says Jenna Thuening, owner of Home Destination. Having the Mortgage Forgiveness Act extended to 2013 is a welcome movement forward.
Budget And Debt Issues Parallel Fiscal Cliff
The long hours put in by our legislators behind closed doors were evident on everyone's faces and in major report findings across the nation. Capitol Hill Blue expressed it as "a struggle that strained America’s divided government to the limit". It is only a temporary delay of debt and budget issues that parallel the tax cuts. "By making Republican tax cuts permanent, we are one step closer to comprehensive tax reform that will help strengthen our economy and create more and higher paychecks for American workers," said Rep. Dave Camp of Michigan, chairman of the tax-writing House Ways and Means Committee. The Debt Forgiveness Act Extension 2013 offers hope to many Twin Cities homeowners.
The US Housing Market Scorecard highlighted topics are:
A September 13, 2012 press release by Federal Chairman Ben Bernanke, originator of the term "fiscal cliff" stressed uncertain headwinds for the economy and a commitment to help sustain the housing recovery.The 2013 Mortgage Forgiveness Act is helping. "While the economy appears to be advancing at a moderate pace, with some improvements appearing in housing and elsewhere, FOMC participants see an economic outlook that remains uncertain. The economy continues to face economic headwinds, including the situation in Europe; tight credit for some borrowers; and fiscal contraction at the federal, state, and local levels. In addition, strains in global financial markets continue to pose significant downside risks," Bernanke said at the FOMC meeting.
Key Points Of The Fiscal Deal Homeowners Should Know
Income Tax Rates: Extends the historically established tax cuts on incomes up to $400,000 for individuals, $450,000 for married tax filers. Households earning higher amounts will be taxed at a rate of 39.6 percent, up from the current 35 percent. The Mortgage Debt Foreclosure Act Extension keeps caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000. Homeowner Bush tax cuts are saved in tact
Homeowners Estate Taxes: Estates will be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, similar estates had to pay a top rate of 35 percent.
Capital Gains & Dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families households filing taxes jointly will increase from 15 percent to 20 percent.
Alternative Minimum Tax: The deal for homeowners is that it permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from all of a sudden having to pay higher tax bills averaging near $3,000.
How The Mortgage Debt Forgiveness Works
Using an example of how a homeowner could get taxed on a short sale - when the seller's home is less than the amount owed on the mortgage:
A the homeowner has a $100,000 mortgage on their house, and they short sell their house, netting $75,000 after sales expenses. After repaying the lender that $75,000, the homeowner has $25,000 in forgiven debt. Come time to file taxes, the IRS will add that $25,000 to the homeowners taxable income. So if they have no deductions and are in a 28% tax bracket, the balance owed would be $7,000 ($25,000 x 0.28) in tax on that forgiven debt. Due to the January 1, 2013 Mortgage Debt Forgiveness Act extension, up until the end of this year, homeowner can escape that forgiven debt tax. Without the extension, the tax bill would be large enough to put many struggling homeowners right back into another financial tailspin. Congress originally created an exemption back in 2009. In the months ahead, Congress and the White House must make further decisions regarding the Debt Forgiveness Act Extension 2013, however, for now, many American's are breathing easier having gained this help to keep families in their homes.
There is a sense of gratitude and relief that the Mortgage Forgiveness Act extended to 2013. Aspects in the Minnesota mortgage debt forgiveness may impact your home mortgage; take steps today to learn just how.
Jenna Thuening, a CDPE can help you understand how you may benefit from the 2013 Mortgage Forgiveness Act.
Eden Prairie MN 55334
Jenna's home page: homedestination.com
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